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Tuesday, November 19, 2013

India's Dept. of Posts floats gold coin tender, others cry foul

Even as the Indian government stymies the sale of gold coins, the postal department floats a tender for sale of coins through post offices.
A battle appears to be brewing between the Indian government and the Department of Posts, which has floated a tender for the sale of gold coins through some 1,000 post offices.
With the Indian government taking strong measures to discourage gold consumption, the tender by the Department of Posts has also brought on howls of protest by political parties.
Sudhakar Reddy of the Communist Party of India, has questioned the tender in a missive to the Prime Minister. Does the right hand know what the left hand is doing? he has asked.
The Current Account Deficit (CAD) has widened to 4.9% in the quarter ending June for India. "It is a well known fact that such a high CAD has made our country vulnerable with the rupee weakening to abnormal levels. Consequently, the common man has to take the brunt with high inflation and spiralling fuel prices," Reddy said.
Arguing against the tender, Reddy has asked how could one arm of the government go against the government's explicit intention of curtailing gold coin sales.
"The huge surge of gold demands, especially those sold by banks, has played a huge role in the ballooning of the CAD. This has been admitted earlier by the government itself. However, it has been observed that both public sector units and private banks are still randomly and openly selling gold coins across the counter. This is in direct contravention of the government claims on the advisory about gold coins," he added.
The party has asked the government to look into the matter.
In its proposal, the postal department states: "Tenders are invited on behalf of the President of India from the manufacturer or suppliers of gold coins for supplying gold coins of various denominations to the Department of Posts, for selling them on commission through specified post offices."
The contract is to be valid for two years and the postal department can increase or decrease the number of post offices considering the commercial viability and demand for the gold coins.
An postal department official maintained that the tender had been floated for the sale of gold in the non imported category only, and that the RBI ban pertained to imported gold sales. He clarified that, in keeping with the government's wishes, the Department of Posts had not sold gold coins at discounted rates during the festive season, and especially after the government advisory curbing sale of the precious metal.
Last year during Diwali, the Department of Posts had given 7% discount on gold coins, while the discount for defence personnel was 8%.
In the past, the postal department would sell coins imported from Valcambi Switzerland, in denominations of 0.5 gram, 1, 5, 8, 10, 20 and 50 grams. Prior to the ban from the government, the Jammu and Kashmir postal circle in North India had set a target of selling 30 kilograms of gold via gold coin sale.
A significant reduction in the sales of coins and gold bars has pulled down the overall demand for gold this Diwali. Though jewellers did not run out of stock as was feared, the premiums on gold came down to $50 per troy ounce level with the raw material available a week prior to Diwali.
"Over the past few months, sales have been slower, but this has helped inventory levels and we had adequate stock during the festive season," said Bachhraj Bamalwa, past chairman of the All India Gems and Jewellery Trade Federation.
Major jewellers, banks and other financial institutions, who were earlier aggressively promoting coins and medallions, have quickly disowned the low margin product. The Federation also asked its members to stop sales of coins and bars to retail customers.
"The Federation had appealed to jewellers to discourage coins sales and the fraternity has taken it positively," said Bamalwa. He added that retail sales of coins and bars accounted for 30% to 35% of gold imports and members of the Federation were eager to bring it down to 15%.
Retailers too have shunned gold coins. Tanishq stopped the sale of gold coins from August. Coins accounted for 10% of sales over the past few years at the store's many retail outlets.
Banks have also stepped up the pressure. Indira Padmini, general manager at the Indian Overseas Bank noted that though the bank has been selling more than 1,000 kilograms of gold coins every year, the total quantity sold this year was around 580 tonnes. She added that no coins had been sold for over 5 months at the bank.
Similarly, Federal Bank’s gold coin sale has halved this financial year, from 609 kilogram in FY13 to 300 kilogram in FY14 so far.

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